The plan would have further cemented Zuck’s total control over Facebook.

Mark Zuckerberg is giving up on an audacious plan to sell most of his Facebook shares without diminishing his total control over the company. The plan, which Facebook announced last year, would have given shareholders two new non-voting shares for each voting share they owned. Zuckerberg hoped to sell these shares to finance his charitable ambitions.

But shareholders sued, arguing that the plan would further consolidate power in Zuckerberg's hands with no benefits to other shareholders. Zuckerberg was scheduled to testify in court in the case on Tuesday. Abandoning the plan saves Zuckerberg from having to do that.

Most companies operate according to a one-share-one-vote principle. But several high-profile technology companies, including Google, Facebook, and Snap, give extra per-share voting rights to founders and early investors. These extra votes give Larry Page and Sergey Brin a majority of Google's voting power even though they own much less than half of Google's shares. The same is true at Snap, where co-founders Evan Spiegel and Bobby Murphy together exercise a majority of the company's votes, giving them total control over the company's management.

Facebook's corporate structure is even more concentrated: Zuckerberg alone controlled a majority of Facebook's shares when the company went public in 2012.

You might wonder why anyone would buy shares in a company where they had no influence in how it was run. Partly, investors were betting on the business savvy of the companies' legendary founders. But they also knew that Page, Brin, and Zuckerberg had a strong incentive to do a good job since most of their fortunes would be tied up in the companies they ran. If they tried to sell too many of their shares, their voting power would fall below 50 percent and other shareholders would gain the ability to fire them. Whatever else you might say about the arrangement, investors at least went into the deal with their eyes open.

But then Google decided to change the rules in a way that made things even more favorable to the co-founders. In 2012, Google proposed creating a new class of non-voting shares and distributing one for each share outstanding. That would have allowed the Google founders to sell half their shares without diluting their control of the company, and it also would have allowed them to issue new non-voting shares to use for acquisitions—again, allowing the company to grow without affecting Page and Brin's control.

Normally, a change like this has to be approved by shareholders. But Brin and Page controlled a majority of Google's voting shares, virtually guaranteeing that Google's board would approve the arrangement.

So shareholders sued, arguing that the stock split benefited Page and Brin at the expense of other shareholders. With a smaller stake in Google, shareholders said, the co-founders would have a reduced incentive to manage Google well. But Google settled the lawsuit in 2014, allowing the stock split to go forward, and the courts never ruled on the legality of the proposal.

Zuck’s turn

Zuckerberg hoped to follow Google's playbook with an even more ambitious three-for-one stock split. If successful, it would have allowed Zuckerberg to sell more than two-thirds of his shares without losing control of Facebook. That would have helped him fulfill his pledge to give away 99 percent of his wealth to charity.

But the plan hasn't gone smoothly. As with Google's plan, Facebook shareholders sued. Information uncovered during litigation revealed that one of Facebook's board members, venture capitalist Marc Andreessen, was coaching Mark Zuckerberg via text message on how to win over other board members at the same time he was supposed to be representing the interests of all shareholders.

If the lawsuit had continued, Zuck could have faced awkward questions about this potential conflict of interest. Instead, Facebook is giving up the fight. "This is an unconditional surrender," shareholder attorney Stuart Grant told BuzzFeed. "I do think the message is loud and clear: you can’t just run over the stockholders."

Zuckerberg explained the decision to drop the proposal in a Friday post on Facebook, writing that last year he thought the stock split was "the best way to do both of these things. In fact, I thought it was the only way. But I also knew it was going to be complicated and it wasn't a perfect solution."

"Today I think we have a better one," Zuckerberg wrote. "Over the past year and a half, Facebook's business has performed well and the value of our stock has grown to the point that I can fully fund our philanthropy and retain voting control of Facebook for 20 years or more."

Still, dropping the stock split limits how many shares he can sell if he wants to maintain his lock on the CEO job. If he ever gives away the bulk of his shares, he'll lose his majority of Facebook's voting power, creating the possibility that other shareholders could fire him if Facebook starts to under-perform expectations.

If I had to bet, then I suspect that the recent decision by stock market index makers to ban multi-share class corporations and grandfather existing ones doomed his goal. If index funds cannot buy the new non-voting shares, then what is the point? There won't be enough buyers.

This reminds me of the time when I was a child (probably 8 or 9) that I convinced an even younger person that my 4 quarters was worth more than her $5 bill because I had four things and she only had one. We traded and then I was scorned and had to return the five dollars to her.

Looks like he's pretty confident he'll be able to retain voting control for the foreseeable future:

"But he has now pulled his request to reclassify the company’s shares, writing on his Facebook page today that 'Facebook’s business has performed well and the value of our stock has grown to the point that I can fully fund our philanthropy and retain voting control of Facebook for 20 years or more.'"

Looks like he's pretty confident he'll be able to retain voting control for the foreseeable future:

"But he has now pulled his request to reclassify the company’s shares, writing on his Facebook page today that 'Facebook’s business has performed well and the value of our stock has grown to the point that I can fully fund our philanthropy and retain voting control of Facebook for 20 years or more.'"

You might wonder why anyone would buy shares in a company where they had no influence in how it was run.

To hopefully make money. If I were to buy shares in a company like Facebook, Google or Apple, it would be in hopes that the shares would be worth much more down the road. It actually never even occured to me until reading this article that buying shares had other aspects to it as well (aside from things seen in TV shows and movies like, "I have 51% of the shares so what I say goes").

Facebook, like oil and natural gas, is a necessary evil of our time; one which people will hopefully move on from before it's too late.

One can dream

Oh the tech industry is pretty good at knocking giants down to size. Maybe even as good as it is at creating them. AOL? Yahoo? Netscape? MySpace? Zuck may have a ten year plan. That doesn't mean he's gonna get ten years to execute it. Or that anybody will care what his plan is in ten years.

Mark Zuckerberg, Larry Page, Sergey Brin, and Marc Andreessen are wealthy men because they chose to sell shares in their companies to the public. If they had wanted to maintain iron-fisted control, they should have kept their companies private. Of course, they would still have been wealthy, but their personal wealth would be far smaller than the wealth credited to them today. Also, it may have been much more difficult for their companies to build out or acquire the other companies necessary to make the corporations they founded what they are now -- the example of Marc Andreessen's notable failure in the end notwithstanding. That's the trade-off.

If the courts don't prevent the disenfranchisement of public shareholders through attempts like this, then our elected representatives should. Though, I won't hold my breath waiting for that to happen. Elected officials of both major parties in the United States are far too easily persuaded to support each new rendition of, "...what was good for our country was good for General Motors, and vice versa," with all of the emphasis on the "vice versa." The life of a "representative" is so much easier when they can significantly limit the number of people to whom they actually listen. It also helps when that relatively small number of people can make very large contributions to the politician's ongoing efforts to continue enjoying all the perks which accrue to the purported people's representatives...

Honestly, I am torn on this sort of thing. The attention to shareholders' interest is all well and good but the market has been quite bad at managing large companies well. In fact, the almost absurd price of the shares for both Google and Facebook despite this seemingly bad-for-shareholders arrangement says that maybe more companies ought to stop letting all their shareholders influence decisions so much. Maybe then we'd see a halt to the current "strategy" of short term gains at the expense of all other considerations.

Basically this plan was screaming "Shares are high, sell now." While the company's growth has been unfathomable (Facebook is a toxic cesspool that's become rife with unwanted ads), why wouldn't anyone want to retain total control while limiting their exposure to when Facebook fades from relevance?

And, I should say it's par for the course for Zuckerberg. Just look at what he was doing in Hawaii as an example.

Plans like these make a complete mockery of the whole "public" company thing.

The modern ideal of a "public company" is worthy of being mocked. At least when companies like Facebook and Google are closely controlled by single individual shareholders, you have someone to hold accountable. Truly publicly held companies have no accountability and when pushed will freely cast off inconvenient executives with 8 or 9 figure golden parachutes while happily betraying public trust in order to please Wall Street and make next quarter's numbers.

Mark Zuckerberg, Larry Page, Sergey Brin, and Marc Andreessen are wealthy men because they chose to sell shares in their companies to the public. If they had wanted to maintain iron-fisted control, they should have kept their companies private.

In many, if not all cases, they never had the choice. They were never the sole investors in their companies, and other stakeholders were demanding an IPO so they could cash out.

71.1 billion in net worth, and he still wants to pull shenanigans to "support his charities".

Uh huh.

He cannot use any of that money unless he sells the shares, at which point, he doesn't control the company any more. Their net worth being $71.1 billion ABSOLUTELY DOES NOT MEAN that they have that much cash or a bank account with a balance that high. Almost all of it is tied up as facebook stock, which he has to keep in order to control the company.

Mark Zuckerberg, Larry Page, Sergey Brin, and Marc Andreessen are wealthy men because they chose to sell shares in their companies to the public. If they had wanted to maintain iron-fisted control, they should have kept their companies private.

In many, if not all cases, they never had the choice. They were never the sole investors in their companies, and other stakeholders were demanding an IPO so they could cash out.

When the company was created there were no other investors. They were forced to give up as control as they took investor money while they were still private. If they didn't want to lose control when selling shares they shouldn't have gone public.

71.1 billion in net worth, and he still wants to pull shenanigans to "support his charities".

Uh huh.

He cannot use any of that money unless he sells the shares, at which point, he doesn't control the company any more. Their net worth being $71.1 billion ABSOLUTELY DOES NOT MEAN that they have that much cash or a bank account with a balance that high. Almost all of it is tied up as facebook stock, which he has to keep in order to control the company.

Understand?

Never mind control - if Zuckerberg started selling a substantial amount of his holdings, the stock would plummet. Everyone would think that the company is in trouble, and in any case there is not enough liquidity that is willing to buy a stock. Small investors with 100 or 1000 shares can sell their position any time, and get the current market price, but Zuckerberg cannot.

71.1 billion in net worth, and he still wants to pull shenanigans to "support his charities".

Uh huh.

He cannot use any of that money unless he sells the shares, at which point, he doesn't control the company any more. Their net worth being $71.1 billion ABSOLUTELY DOES NOT MEAN that they have that much cash or a bank account with a balance that high. Almost all of it is tied up as facebook stock, which he has to keep in order to control the company.

Understand?

Never mind control - if Zuckerberg started selling a substantial amount of his holdings, the stock would plummet. Everyone would think that the company is in trouble, and in any case there is not enough liquidity that is willing to buy a stock. Small investors with 100 or 1000 shares can sell their position any time, and get the current market price, but Zuckerberg cannot.

Largely true, although it's also true that Schmuck and others in his position do set about to diversify their holdings as soon and as quickly as they can, so they're wealth is better sheltered from the vagaries of a single company. Such divestitures are tightly regulated, however, and as you note it simply isn't possible to dump millions of shares at one go without taking a huge loss once the street notices what you're doing. High-ranking execs bailing on their own company's stock in a big way is a sure sign that something is horribly wrong.

But I'd guess that, even if someone were to burn every single one of Schmuck's shares, he'd still be doing far more than just alright for decades to come. Maybe centuries.

You might wonder why anyone would buy shares in a company where they had no influence in how it was run.

To hopefully make money. If I were to buy shares in a company like Facebook, Google or Apple, it would be in hopes that the shares would be worth much more down the road. It actually never even occured to me until reading this article that buying shares had other aspects to it as well (aside from things seen in TV shows and movies like, "I have 51% of the shares so what I say goes").

Companies also pay out dividends from profit to shareholders, so even if the stock doesn't increase a lot you can be making money.

It would be nice if making money in stocks was more heavily from dividends than trading though, as that would encourage strategies for long term value. It seems like right now public shareholding has degenerated to major investors basically using board control for a variation on pump and dump - make the company mortgage its future to jack up the share price and then get out.

You might wonder why anyone would buy shares in a company where they had no influence in how it was run.

To hopefully make money. If I were to buy shares in a company like Facebook, Google or Apple, it would be in hopes that the shares would be worth much more down the road. It actually never even occured to me until reading this article that buying shares had other aspects to it as well (aside from things seen in TV shows and movies like, "I have 51% of the shares so what I say goes").

You are then part of the problem. If shareholders don't hold management accountable, then management does whatever the fuck it wants, and that's Bad.

Mark Zuckerberg, Larry Page, Sergey Brin, and Marc Andreessen are wealthy men because they chose to sell shares in their companies to the public. If they had wanted to maintain iron-fisted control, they should have kept their companies private. Of course, they would still have been wealthy, but their personal wealth would be far smaller than the wealth credited to them today. Also, it may have been much more difficult for their companies to build out or acquire the other companies necessary to make the corporations they founded what they are now -- the example of Marc Andreessen's notable failure in the end notwithstanding. That's the trade-off.

I'd forgotten all about Marc Andreessen but he is seemingly worth about a Billion $US due maybe mainly to his venture capital partnership!Not sure how much he made when AOL bought Netscape?

Honestly, I am torn on this sort of thing. The attention to shareholders' interest is all well and good but the market has been quite bad at managing large companies well. In fact, the almost absurd price of the shares for both Google and Facebook despite this seemingly bad-for-shareholders arrangement says that maybe more companies ought to stop letting all their shareholders influence decisions so much. Maybe then we'd see a halt to the current "strategy" of short term gains at the expense of all other considerations.

An interesting case in point: Ford Motor Company is still, to this day, controlled by the family of Henry Ford, through a two-tiered share class structure. They own only 2% of the stock, but have a ~40% share of the vote.

The Ford Family tends to favor longer-term strategy, and their influence is supposedly why Ford was the only one of the US car companies that didn't go bankrupt during the recession.

if Zuckerberg started selling a substantial amount of his holdings, the stock would plummet. Everyone would think that the company is in trouble, and in any case there is not enough liquidity that is willing to buy a stock.

Bill Gates had no problem with that. At one time he was Microsoft's largest shareholder with something like 500 million shares. He now owns a lot less Microsoft stock and nothing has crashed.

71.1 billion in net worth, and he still wants to pull shenanigans to "support his charities".

Uh huh.

He cannot use any of that money unless he sells the shares, at which point, he doesn't control the company any more. Their net worth being $71.1 billion ABSOLUTELY DOES NOT MEAN that they have that much cash or a bank account with a balance that high. Almost all of it is tied up as facebook stock, which he has to keep in order to control the company.

Understand?

Really? I totally didn't grasp that.

Or I was being hyperbolic about his claim that it's for the charities, and not a way to make free money appear without relinquishing control of FB and just do as he pleases.